Property Crime, Earnings Variability, and the Cost of Capital

88 Pages Posted: 22 Dec 2013 Last revised: 4 Aug 2016

James Brushwood

Colorado State University, Fort Collins - Department of Accounting

Dan S. Dhaliwal

University of Arizona - Department of Accounting

Douglas J. Fairhurst

Washington State University

Matthew Serfling

University of Tennessee

Date Written: June 27, 2016

Abstract

We show that firms located in states where property crime is more prevalent have more uncertain earnings and higher financing costs. Specifically, firms located in states with higher property crime rates have more volatile and less persistent earnings as well as lower quality analysts’ earnings forecasts. Firms located in states with higher property crime rates also have a higher cost of equity and debt capital. These results are robust to accounting for econometric and endogeneity concerns in various ways. Overall, our results suggest that a potentially large and overlooked cost of crime is a higher cost of capital.

Keywords: Earnings variability, Cost of equity, Cost of debt, Property crime, Theft

JEL Classification: G30, M41

Suggested Citation

Brushwood, James and Dhaliwal, Dan S. and Fairhurst, Douglas J. and Serfling, Matthew, Property Crime, Earnings Variability, and the Cost of Capital (June 27, 2016). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2370644 or http://dx.doi.org/10.2139/ssrn.2370644

James Brushwood

Colorado State University, Fort Collins - Department of Accounting ( email )

256 Rockwell Hall
Fort Collins, CO 80523
United States

Dan S. Dhaliwal

University of Arizona - Department of Accounting ( email )

McClelland Hall
PO Box 210108
Tucson, AZ 85721
United States

Douglas J. Fairhurst

Washington State University ( email )

Todd Hall
P.O. Box 644746
Pullman, WA WA 85721-0108
United States

Matthew Serfling (Contact Author)

University of Tennessee ( email )

Haslam College of Business
Knoxville, TN 37996
United States
865-974-1952 (Phone)

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